Manager's
Amendment of S. 515 Would Eliminate Most Suits

    By Kevin E. Noonan —

Over the past few weeks, close to perhaps one
hundred actions, characterized as "qui
tam" (or whistleblower) lawsuits have been filed against several large
companies (including 3M, Monster Cable Products, S.C. Johnson &
Co., Proctor & Gamble Co., and Novartis Pharmaceuticals, Inc.).  These actions are based on alleged
violation of 35 U.S.C. § 292(b), the "false marking" portion of the
patent statute that makes it a violation to intentionally mark an item in
commerce with a patent number that has expired or does not protect the goods:

(a)  Whoever, without the consent of the patentee, marks upon, or affixes
to, or uses in advertising in connection with anything made, used, offered for
sale, or sold by such person within the United States, or imported by the
person into the United States, the name or any imitation of the name of the
patentee, the patent number, or the words "patent," "patentee,"
or the like, with the intent of counterfeiting or imitating the mark of the
patentee, or of deceiving the public and inducing them to believe that the
thing was made, offered for sale, sold, or imported into the United States by
or with the consent of the patentee; or Whoever marks upon, or affixes to, or
uses in advertising in connection with any unpatented article the word "patent"
or any word or number importing the same is patented, for the purpose of
deceiving the public; or Whoever marks upon, or affixes to, or uses in advertising
in connection with any article the words "patent applied for," "patent
pending," or any word importing that an application for patent has been
made, when no application for patent has been made, or if made, is not pending,
for the purpose of deceiving the public – Shall be fined not more than $500 for
every such offense.

(b)  Any person may sue for the penalty, in which
event one-half shall go to the person suing and the other to the use of the
United States.

These suits have arisen at this time in part
because of the Forest Group, Inc. v. Bon Tool Co. case, where the Federal Circuit determined that calculation of the statutory penalty
for false marking (up to $500 per "offense") would be left to the sound discretion
of the trial court; this overturned the District Court's calculus that each "offense"
was the decision to false mark, and created the possibility of a windfall for plaintiffs.  For mass-produced and –sold consumer
items, a fine of $500 for sale of each improperly-marked item would be catastrophic.  The Federal Circuit is set to hear oral
arguments on April 6 on a similar case, Pequignot
v. Solo Cup, that will address the question of intent to false mark that
raises liability under the statute.

While there has been much to criticize in the
attempts in this and prior Congresses to pass patent "reform"
legislation, one provision of the Senate bill, S. 515, contained in the
recently-released Manager's Amendment seems to provide a quick remedy for this
rash of qui tam lawsuits.  The
specific language is contained in Section 2, subsection (k):

(k) FALSE MARKING.—

(1)
IN GENERAL.—Subsection (b) of section 292 of title 35, United States Code, is
amended to read as follows: ''(b) A person who has suffered a competitive
injury as a result of a violation of this section may file a civil action in a
district court of the United States for recovery of damages adequate to
compensate for the injury.''

(2)
EFFECTIVE DATE.—The amendment made by this subsection shall apply to all cases,
without exception, pending on or after the date of the enactment of this Act.

Perhaps the most important feature of the proposed
legislation is its retroactivity:  section (k)(2) would, if passed, support a motion to dismiss for almost
all of the defendants in all of the qui
tam lawsuits now pending.  On
the other hand, the proposed legislation converts a public right to a private
one, and raises the possibility that a false-marking patentee could be subject
to multiple lawsuits by several of its competitors.  And the proposed change eliminates the government's right to
half of the fine imposed for false marking.

Passage of this or any other portion of S. 515, is
uncertain at best, particularly in view of the broadside from the House
directed at Senator Leahy and his Senate brethren who have agreed on the latest
"compromise" (see "House Leadership Says It Lacked 'Adequate Input' on Senate Patent Reform Bill").  However, it is good to see representative government working at its
best:  a problem arose for important constituents, and their representatives
promptly responded.  Would that
this performance was the norm, and more generally the case for all Congress's
constituents.  But for the
companies under the threat of qui tam
litigation, this amendment could not have come at a better time.

Hat tip to Alan Krantz of McDonnell, Boehnen,
Hulbert & Berghoff LLP for contributing to this post.